by Bill Holter, JS Mineset:
We talked yesterday about the upcoming G-20 finance meeting, I said I believed it would not be “benign”. Many readers have questioned why and to paraphrase “rarely has the G-20 made important announcements or decisions, why would they do this now”? We’ll get to this shortly.
I believe the global finance system is coming to a very rapid head and many major participants are displeased with using the U.S. dollar. At the very top of this list is China. Quietly China has announced
http://www.bloomberg.com/news/articles/2016-01-11/pboc-s-ma-sees-stable-yuan-as-peg-shifts-to-basket-from-dollar and commented further they no longer plan on strictly pegging the yuan to the dollar. Instead they plan to peg their currency to a basket of other currencies. They have indicated they do not plan to devalue the yuan as markets worldwide were selling off on this fear.
Are the Chinese being truthful? I believe they are speaking out of both sides of their mouth but can support either case, let me explain. If you will notice, many foreign currencies are trading near lows versus gold (the equivalent of being devalued). Another way to say this is gold is trading close to all time highs in many various currencies. For the yuan to be pegged to these depreciating currencies would mean the yuan will simply go with the flow so to speak and trade down against gold. On the other hand, we have the trade versus the dollar. In this case the yuan has stalled its gradual strengthening and has instead weakened. This move to change the peg by the Chinese has giant implications but very little has been said in the press to this point.
Another piece of news, the Chinese are buying U.S. companies at a record pace recently China is buying up American companies fast, and it’s freaking people out. These deals are all reported in dollars and I would assume dollars are being used for purchase. This would amount to what we have talked about for a long time, “selling dollars for stuff”! It is said this action is scaring people, maybe so but can you imagine what would happen should the Chinese be told “no, you can use your dollars to buy U.S. companies”?
Tying this together, I just wanted to point out China is the clear leader in the G-20, they are now admitted as part of the SDR basket, their forex reserves have been dropping (they are said to be defending the yuan, are they?), they are spending dollars on “stuff” and foreign companies …and they no longer want to peg the yuan directly to the dollar? (Just as a reminder, they are also the largest buyer of gold on the planet).
Now, let’s fast forward to next Monday and the aftermath of the G-20. It is obvious there are huge stresses both economically and financially on a globe wide basis. Has the rest of the world “had enough”? Are they tired of being forced to settle in a currency that is now artificially strong due to synthetics yet freely printed by a nation increasingly viewed as the world’s bully? I would definitely say the answer is yes they are. The next question is; “ARE THEY TIRED ENOUGH”?
To put it bluntly, the world has been watching “us”. They understand we are too broke to pay attention and adding new balances to the credit card every day. Do you think they might be asking the question, “why does the U.S. get to issue the world’s reserve currency if they are broke”? They also see us moving further and further down the “socialist” (fascist) road Venezuela already has … and hitting a wall at the end. Does the world see the U.S. running into this same wall? Yes, they probably do. Do they want to be a passenger in the back seat of this ride? Probably not which leads us back to the question, is the world tired enough?
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